Is Lucid Group (LCID 7.16%) stock going to zero?
If that headline got your attention, I'm glad. While Lucid has made some of the best electric vehicles (EVs) we've seen yet, the company itself is still a long way from profitability. That makes it vulnerable amid the ongoing uncertainty around the near-term trend of EV sales, particularly in the United States, where most Lucids are sold.
"Lucid will muddle through and get to profitability eventually," you might say. And you might be right. As a fan of Lucid's products, I certainly hope so.
But there's one thing that could send Lucid stock to zero in a hurry, and it's something that investors need to keep at the forefront of their minds.
Lucid's electric vehicles have been groundbreaking. But the company still faces a big risk in its path to profitability. Image source: Lucid Group.
Lucid has a unique advantage -- and a unique risk
Lucid has a big investor with very deep pockets: Saudi Arabia's Public Investment Fund (PIF). It's the country's sovereign wealth fund, with around $925 billion in assets under management.
PIF owns about 60% of Lucid, and -- so far -- it has been willing to pour in money to maintain its ownership stake around that percentage. That's important: As an automaker that's currently operating well below its breakeven point, Lucid burns a lot of cash. And that means it has had to raise a lot of cash -- almost $5.8 billion just in the last two years.
The burn rate will vary from quarter to quarter, but Lucid will continue to burn (and, presumably, raise) cash for a while. Even if everything goes perfectly, Lucid is unlikely to turn profitable until 2028 at the earliest.
Whenever that transition to profitability happens, Lucid may need to raise another several billion dollars to get there. Right now, it can count on PIF to put up the lion's share of that cash, which should continue to give other investors the comfort to invest in the EV maker.
But what if PIF decides enough is enough?
NASDAQ: LCID
Key Data Points
This is how Lucid stock could go to zero
If PIF decides to stop investing in Lucid, the EV company will be in deep trouble immediately. Not only will it lose its biggest investor, by far, but such a decision would likely scare other major investors away as well.
If that transpired, Lucid's best hope would probably be an acquisition by a major automaker that wanted Lucid's battery or software technology. And such an acquisition would probably be at a fire-sale price, possibly after a bankruptcy proceeding that wiped out shareholders.
That's how Lucid's stock could go to zero. How likely is it? That depends on how the global economy -- and the competitive landscape for EVs -- unfolds over the next couple of years.
But it's a real possibility, one that shareholders should keep in mind.
